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Wednesday, June 13, 2012

Portrait of Portugal in the Midst of Austerity – The Country is Calmly Facing Economic Disaster

Not a Lost Decade for Portugal – A Lost Generation, If
They Are Lucky Enough to Hold It At That

While Greece and now Spain
are getting the attention of the news media there are other countries of Europe that are struggling under the imposition of
austerity imposed by creditor nations.
The New York Times has
a picture of Portugal, whose poverty and poor economy in the past has made
today’s plight a little more tolerable.
Here is the snapshot.

The most optimistic
projections point to a 3 percent contraction of the economy this year, after a
1.5 percent decline in 2011. Officially, unemployment is at 14.9 percent, its
highest point in more than a decade, and more than 30 percent of the country’s
young people are out of work. But some analysts suggest that the government is
underestimating the true jobless rate, especially for youths, which they say
may run as high as 40 or 45 percent.

Hospitals are closing.
State benefits, public wages and pensions are being cut. New taxes have been
added, and old taxes increased. The government has sold its stake in the national
electric company to a state-run Chinese corporation.

While turmoil and
electoral unrest has accompanied the problems in Greece,
Portugal
seems relatively accepting of their fate.
This is probably because the country never was an economic powerhouse,
the post war dictatorship being the cause of arrested economic development.

Memories
are still sharp here of the poverty of the mid-20th century, when just half of
homes had running water and only 30 percent had electricity. In the 1980s, with
the state nearly bankrupt and inflation running at over 30 percent, more than
one million workers saw their salaries withheld for months on end. There were
no major protests, though, said António Barreto, a sociologist and former
government minister. Most workers declined buyouts and continued to work without
pay.

Of course, all this
suffering could be justified if it was likely to result in better times for
the future. It is not.

There
is little immediate prospect of growth, economists say, particularly with
educational levels far lower here than anywhere in the European Union or in
much of the developed world. In 2009, only 30 percent of Portuguese adults had
completed high school or its equivalent, according to figures from the
Organization for Economic Cooperation and Development.

“The
poor Portuguese, they have just neglected to invest in high-quality human
capital,” said Daniel Gros, the director of the Center for European Policy Studies in
Brussels. The
only path to growth will be through further wage cuts, Mr. Gros said, “because
their economy, structurally, given the low human capital, is in products and
industries in which low-wage competition is just overwhelming.”

Portugal has an export dominated economy, and
exports can serve the function of a Keynesian stimulus, acting place of
government spending to drive employment and growth. But things don’t look so good in that sector.

oao Pina for The New York Times

The factory at TemaHome, a furniture company, where sales have dropped to $10 million from $18.5 million in five years.

That
competition has changed the outlook at TemaHome,
which has been manufacturing furniture since 1981. Five years ago, annual sales
hit $18.5 million, with 70 percent of that coming from exports to the rest of Europe. Last year, with demand plummeting, sales fell to
just $10 million.

In
2007, 160 people worked on TemaHome’s factory floor in Tomar, about 75 miles
north of Lisbon; today, there are just 105, and the company is struggling to
compete with factories in Eastern Europe and China, said Luís Vicente, the
production director. TemaHome’s future lies in producing high-quality,
customized furniture, he said, and it has hired a handful of designers and
salespeople even as it has shed factory workers. Revenues in the first quarter
were up 20 percent this year.

“This
crisis is making us a little stronger than we were otherwise,” said Miguel
Calado, one of TemaHome’s primary investors. “And you can say the same thing
about the country.”

The
problem, Mr. Calado said, is that the health of the Portuguese economy — which,
like TemaHome, relies heavily on exports — is linked to demand in Europe, which is tipping into recession.

So as Europe lurches
into full blown recession the residents of Portugal will be doing what an
increasingly number of other Europeans will be doing, trying to survive. In the post war years the western world
organized charitable relief for people starving in Asia. One wonders if in the post Great Recession
world the Asian world will be organizing charitable relief for people starving
in Europe.
No not likely, but it could happen.